Model-Free Time-Aggregated Predictions for Econometric Datasets

Kejin Wu and Sayar Karmakar
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Kejin Wu: Department of Mathematics, University of California San Diego, La Jolla, CA 92093, USA
Sayar Karmakar: Department of Statistics, University of Florida, Gainesville, FL 32611, USA

Forecasting, 2021, vol. 3, issue 4, 1-14

Abstract: Forecasting volatility from econometric datasets is a crucial task in finance. To acquire meaningful volatility predictions, various methods were built upon GARCH-type models, but these classical techniques suffer from instability of short and volatile data. Recently, a novel existing normalizing and variance-stabilizing (NoVaS) method for predicting squared log-returns of financial data was proposed. This model-free method has been shown to possess more accurate and stable prediction performance than GARCH-type methods. However, whether this method can sustain this high performance for long-term prediction is still in doubt. In this article, we firstly explore the robustness of the existing NoVaS method for long-term time-aggregated predictions. Then, we develop a more parsimonious variant of the existing method. With systematic justification and extensive data analysis, our new method shows better performance than current NoVaS and standard GARCH(1,1) methods on both short- and long-term time-aggregated predictions. The success of our new method is remarkable since efficient predictions with short and volatile data always carry great importance. Additionally, this article opens potential avenues where one can design a model-free prediction structure to meet specific needs.

Keywords: ARCH-GARCH; model-free; aggregated forecasting (search for similar items in EconPapers)
JEL-codes: A1 B4 C0 C1 C2 C3 C4 C5 C8 M0 Q2 Q3 Q4 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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